Your Aunt Is About to Retire,and She Wants to Sell

question 141

Multiple Choice

Your aunt is about to retire,and she wants to sell some of her stock and buy an annuity that will provide her with income of $50,000 per year for 30 years,beginning a year from today.The going rate on such annuities is 7.25%.How much would it cost her to buy such an annuity today?

• A)$574,924
• B)$605,183
• C)$635,442
• D)$667,214
• E)$700,575

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Definitions:

Marginal Rate

The rate at which one variable changes over the change in another variable, often used in the context of taxes or marginal rate of substitution in economics.

Substitution

The economic concept whereby consumers replace costlier items with less expensive alternatives, or firms switch between inputs to minimize costs.

Indifference Curves

A graph showing different bundles of goods between which a consumer is indifferent, representing equal levels of utility.

Income Effect

Adjustments in the financial earnings of an individual or an economy and the corresponding effect on the quantity of goods or services demanded.